Taken from Henry George, the title of this post refers to economists who make good points but don’t get to their logical conclusion. Mariana Mazzucato may be another. We may start by looking at some of the main themes of her book.

Value extractors are obtaining a large and increasing share of wealth produced, resulting in a smaller share for those who actually produce valuable goods and services. This problem has several interlocking causes.

Measures of national product (GDP) conceive value as equal to price, meaning that any profitable activity adds to national product even if it’s essentially an extraction of value rather than production of good or service of value. In recent decades, opportunities for private value extraction have multiplied.

One effect of this increase in private value extraction is that the extractors now have effective control of much of the government. Lobbying by value extractors changed national income concepts to include their extractions in GDP.

Further, the conventions of national income calculation tend to understate the value of government work. This is because the value of a private company’s production necessarily exceeds, on average, the cost of labor and capital inputs (otherwise the company would have no profit). A government’s production, by contrast, is treated as equal to the cost of the inputs, even if the value of the product is much greater.

Partly as a result of this undervaluation, some services previously provided by government have been “privatized,” which means, in most cases, are still funded by taxes but are performed by employees of private firms under contract.

Some examples of the
problem:

As retirement income becomes based on earnings of assets, pools of assets grow and opportunities for value extraction multiply. This includes fees for managing investments, and various side-hustles.

As governmental functions are “privatized,” the quality of service drops along with the earnings of people who provide the service. But costs typically don’t decline because of contractors’ profits and lobbying expenses.

Patent privileges have been vastly expanded in recent decades. This provides more opportunities for value extraction, but actual useful innovation seems to be retarded by patents. Also, as patent offices have become understaffed relative to the workload, patents become easier to obtain.

Governments (or their banker overlords) seek to reduce the deficit/GDP ratio by reducing spending, failing to recognize that some kinds of government spending actually facilitate an increase in GDP far in excess of their cost.

The dominant neoclassical economic ideas assume that rent can be competed away, and that unemployment is voluntary. They further fail to recognize “the collective and cumulative processes behind innovation.”

The remedy? According to the author:

“We” need to “define and measure” the “collective contribution to wealth creation,” to overcome the “price=value thinking…” and recognize that most of the “…creation of value is collective.”

“We” should also recognize that the current structure of corporations, controlled by shareowners thru boards, with no formal role for employees, customers, and other “stakeholders,” is not the only possible or practical way to arrange things.

The role of governments, as well as nonprofits and cooperative organizations, in value creation needs to be recognized.

Tax laws need to be modified to advantage actual value creators rather than value extractors. In addition to changes in income tax laws, a small tax on financial transactions would be helpful.

Patent laws need to be modified to discourage abuse. To encourage particular kinds of innovation, bounties might be substituted for patents.

Portraying government as “investing, not spending, can eventually modify how it is regarded.” [of course this little trick has been used by U S politicians for many years.]

“We” need to develop a vision of what society needs, and set government priorities regarding infrastructure, services, and regulations to achieve it.

So what is the value
of this book?

It does give some history of concepts of national income, going back to the 17th century and summarizing views of William Petty and Gregory King as well as Adam Smith, the Physiocrats, Ricardo, and (with special admiration) Marx and Keynes. It does discuss rent, mostly in an accurate way. There’s no mention of Henry George, perhaps because this part of the book is euro-centric, or perhaps for other reasons. She does mention some important Americans, including Elinor Ostrom.

It identifies the problem of accumulated privilege, resulting in value extraction, which impedes real progress.

It clearly describes some principal means by which value is extracted.

It taught me a few things about the way GDP is calculated, and the history of patents.

It clarifies that there’s nothing “natural” or “inevitable” about the way our economy is set up; many different arrangements for such components as corporations and patents could work, and some would be a lot better than what we have.

In a description of VW and the “dieselgate” affair, she acknowledges some of the limitations of her proposals.

As a Georgist, I see
two big shortcomings with this book:

(1) Even tho nowadays the value extractors have effective control of governments and other powerful institutions, the author seems to assume that somehow these forces will be overcome once the people come to understand that government really is useful, and that the benefits it provides are far greater than is reflected in GDP. Furthermore and related, there is the assumption that the bulk of government expenditure is good, that government is for the most part honest and reliable. There is also almost no mention of the huge waste on military, punishment, and other expenditures which an honest and efficient government would need to eliminate. So, once proper understanding is achieved, the government will wisely set priorities and provide appropriate infrastructure and services. No method is proposed for accomplishing this, and the alternative of decentralization really gets no attention.

(2) While rent is mentioned, and for the most part correctly characterized, there’s no discussion of how rent can be used to properly fund services and eliminate other taxes. It’s true, of course, that some privileges are best eliminated, but for use of real estate parcels, electromagnetic spectrum, and other natural resources the wise policy in most cases is to allow private ownership but collect virtually all the rent for public use.

And then there are a
few little nits to pick.

She does not like corporations to distribute profits to shareholders. Partly this seems to be because share buybacks are one of the several ways that corporate management contrives to reward themselves excessively, but also she displays a fundamental belief that corporations should reinvest in their business, apparently without regard for whether management believes worthwhile opportunities are available.

“A recent study by researchers at the University of Pennsylvania…” is referenced on page 219, but without footnote or citation.

On page 44 she describes rent as including “what you pay a landlord to live in a flat.” This is inconsistent with the way she uses the term elsewhere in the book, since only part of what you pay to live in a flat is to cover the proportionate share of the land it occupies; much is for use of the structure (capital) and services (labor).

In conclusion, this is a pretty good book for understanding how some means of wealth extraction work and why it poses a danger to the rest of us. It encourages us to consider alternative ways for organizing our communities. But it’s weak on practical solutions.

additional note: Mariana Mazzucato has recently been interviewed regarding this book on Econtalk and Alphachat.

another additional note: Font sizes may appear a bit screwy herein because I haven’t figured out how to enlarge the teeny font that seems to be the default in WordPress lists under the new Gutenberg editor. Someday maybe I will.

After a couple of months’ diversions, I hope I am getting back to something like regular blogging, starting with a nice article — as far as it goes, at least– by Gregg Easterbrook about the subsidies and political favors governments provide for professional football. A lot of this, on stadium subsidies (not just for football), has been covered in the past by Heartland, most recently here (pdf). But Easterbrook covers some additional ground, noting the federal favors done for the football business. I hadn’t been aware that NFL has a special anti-trust exemption (I thought it was just one of the many many cases where feds choose not to enforce laws.) And I’d never made the connection between stadiums paid for by the public, and the “intellectual” “property” of football game images, which of course are government-created privilege.

Easterbrook does seem to be a football fan, which is a skill (affliction?) far beyond my capabilities. My preferred remedy for “sports” subsidies has always been for the audience to go away and do something else. But even tho I’m just as happy watching an amateur softball game, many people evidently get pleasure from seeing the professionals in action. Easterbrook suggests that it’s necessary that “public attitudes change.” Great idea, but as long as the public feel compelled to watch these games, it’s difficult to imagine any politician willing to risk the wrath of those who control them.

Gary Lucido writes of a small parcel at 3710 N. Kenmore, offered at $9.9 million ($4950/sq ft) after failing to sell when offered at lower prices. While the price seems outrageous, the property is very close to Wrigley Field and could be used for a billboard or rooftop viewing platform. We know that the former use has commanded $350,000/year on a nearby building, which seems to justify a multi-million-dollar asking price.

So we have a parcel worth, let us say, five million dollars. What are the taxes? (more…)

This is about software problems. For some reason Firefox and Mint 10 KDE don’t get along, and after anywhere from many minutes to several hours the system locks up. Leave it alone for 6, 8, 10 hours and it seems to recover, but I can’t usually spare the time.

So, while waiting for Mint 11 KDE, which one hopes will solve the problem, I’ve been using the Opera browser instead of Firefox. Opera is very smooth, works very well except when it doesn’t. And doesn’t is how it handles blanks in the WordPress visual editor. Whichwouldresultinallthewordsrunningtogether. So, for blogging, I switch back to Firefox. All the while worrying whether I’ll get another freeze. What’s really discouraging is that neither the WordPress forum nor the Opera forum have offered any assistance.

Mostly by subsidizing it heavily while failing to enforce anti-trust. This one isn’t about insurance, patents, or even unions; it concerns hospitals, suppliers, sole-source contracts and kick-backs. Like most medical stuff, there’s too much money and power involved to expect a good result.

Florida journalists Robert Block and Mark K. Matthews see it as a conflict of interest that a former Marathon Oil Director, who still owns over half a million dollars worth of Marathon stock, is working to prevent NASA, which he heads, from developing a method of creating oil from waste, algae, and seawater, while absorbing CO2. The scandal apparently is that the suspect, Charlie Bolden, sought advice from Marathon before seeking to delay the project.

Buried deep in the text is the note that Marathon has its own “proprietary microbe” to produce ethanol from wood chips. Whereas, one hopes, that a successful NASA project would produce technology available to all.

I suppose Bolden wanted, not to kill the project, but only to slow it until Marathon’s attorneys can figure a way to monopolize the “intellectual” “property” which it produces. Am I cynical?

btw, I think Tribune Company still owns the Orlando Sentinel, where this article was produced, but there is, so far, no sign of it in on Chicagotribune.com.

One (of several) good arguments for eliminating, or at least drastically scaling back, patents, is the existence of patent trolls, entities whose sole business is trying to hinder the diffusion of innovation. They buy patents believed to have little value, and try to intimidate actual productive individuals or companies into licensing them. If you’re, say, a manufacturer, and a troll offers you a license for a few thousand dollars, you might just pay up to avoid the expense and risk of defending yourself.

Now, we have debt trolls. These are (per second page of this article) “well-funded, aggressive and centralized collection firms, in many cases run by attorneys, that buy up unpaid debt and use the courts to collect.” The reason it’s news is that, in Minnesota and some other states, taxpayer-funded police, jails, and courts are used to arrest the alleged debtor and collect the debt. It’s not exactly debtor’s prison, but it is going to jail because you’ve failed to pay what you (presumably) owe.

…you agree to grant Us a non transferable option to claim, for now and for ever more, your immortal soul. Should We wish to exercise this option, you agree to surrender your immortal soul, and any claim you may have on it, within 5 (five) working days of receiving written notification…we reserve the right to serve such notice in 6 (six) foot high letters of fire, however we can accept no liability for any loss or damage caused by such an act.

Purchasers were offered an opt-out checkbox, but apparently only 12% checked it.

Of course nobody reads the terms and conditions. (Actually, I have met one person who claims to; I didn’t ask him whether he had actually purchased anything on-line.) On more than one occasion I’ve found the link to terms and conditions didn’t work, or made no sense, have notified the vendor and usually received an updated link or a correction.

It’s true that census confidentiality is imperfect and could be used to compromise civil liberties, but I can’t imagine any way that it could be used to steal one’s identity (especially if one is cautious enough not to provide name information on the form). IRS, that’s a different matter. Anyway, Equifax has found another way to sell their protection racket. If it’s “only $4.95” for the first month, how much is it thereafter?